Vladimir Putin dogged by recent corruption scandals

Open letters about a palatial villa and celebrity fundraiser have called for corruption investigations.

A man looks at a banner with portraits of (left to right) Libyan leader Muammar Gaddafi, Belarus President Alexander Lukashenko, Russian Prime Minister Putin and a sign reading "Next in line" during an authorized opposition rally at Pushkinskaya Square in Moscow on March 13, 2011. (Andrey Smirnov/AFP/Getty Images)

MOSCOW, Russia — That Russia is one of the most corrupt countries on earth has become a given.

Usually, that fact is illustrated by numbers: Transparency International ranks Russia near the bottom of its corruption perceptions index (at 154), well below any other Group of Eight nation and even below such winners as Egypt (98) and Libya (146).

But in the past few weeks, two scandals have given an unexpected face —that of Prime Minister Vladimir Putin — to what the Russian leadership has termed the country’s biggest problem.

The two scandals — one involving a secret villa and the other a sham charity concert — prove that corruption, having seeped into every aspect of Russian life, leaves no one untouchable.

News of what has become known as the "Putin Palace" first emerged in December, when businessman Sergei Kolesnikov wrote an open letter to President Dmitry Medvedev calling on him to investigate the powerful prime minister for alleged corruption.

"Corruption can only be eradicated if the effort commences at the top and goes all the way to the bottom," Kolesnikov wrote. His letter was an insider's tale that recounted the construction of a 3,000-square-foot mansion being built on the Black Sea which, he alleged, was to be used by Putin as a vacation home.

In the 1990s, Kolesnikov co-founded a medical supplies company called Petromed, as well as two other entities, one of which was the St. Petersburg city government’s external relations committee, then headed by Putin, a little-known bureaucrat. Putin kept up links with the company after ascending to the Russian presidency in 1999, namely through his friend Nikolai Shamalov, a powerful banker, Kolesnikov said. In 2000, Shamalov approached Petromed with a proposal that Kolesnikov says came directly from Putin: Russia’s powerful oligarchs would supply tens of millions of dollars to Petromed to deliver equipment to health clinics in St. Petersburg, and Petromed would shuttle 35 percent of all funds to offshore accounts.

In 2005, Kolesnikov says Shamalov asked him to open an investment vehicle, Rosinvest, to manage the investment of those offshore funds. The company grew, investing in shipbuilding, construction and timber. Kolesnikov oversaw it all — except for two projects that soon came to overshadow all the others. They were known as “Project South,” one was a sprawling palazzo in the town of Praskoveyeka, the other an elite vineyard nearby. After the financial crisis hit — and it hit Russia especially hard — all other investments were stopped, Kolesnikov says.

“In mid-2009 Mr Shamalov conveyed to me Putin’s decision to suspend almost all projects and to work solely on, and channel all available funds to, ‘Project South,’” Kolesnikov wrote.

Within weeks, pictures of the palace appeared on Russian Wikileaks, showing a grand palazzo with two-story columns and manicured gardens. Inside, gaudy oversized furniture stood beneath gold-plated ceilings. The site, according to Kolesnikov, who visited it several times, includes theaters and a casino, three helicopter landing pads, tea houses and a church. What started out as a 400 million-ruble project ($14 million) had turned into a $1 billion one, Kolesnikov said, citing the last budget he saw, in October 2009.

Kolesnikov, 62, says that’s when he fell out with the company and decided to flee to the United States. “We agreed [to the offshore scheme] only if it was going to be invested in the Russian economy,” he said in a telephone interview from Washington, D.C. Was his record entirely clean before?

“I’m not saying everything was wonderful and then it became evil. But when the evil outweighs the good … ,” he said.

Russian officials denied any knowledge of the palace. Then Novaya Gazeta, a leading opposition newspaper, published a document signed by Vladimir Kozhin, head of the presidential property service and a close Putin ally, authorizing the construction in 2005.

As the scandal grew inside Russia, the palace was quietly sold by a Shamalov-controlled company to a little-known businessman named Alexander Ponomarenko.

“If you're not afraid to buy on a scandal, you can make good money,” he told Kommersant, a respected Russian daily, at the time.

Soon after the sale, a second scandal erupted, this time involving a charity concert in St. Petersburg, attended by Hollywood elite, ostensibly to raise funds to help children with cancer. It was at that fundraiser, organized by an unknown charity called Federation Fund, where Putin took to the stage to sing his now famous rendition of "Blueberry Hill."

This scandal also broke with an open letter, from the mother of one of the sick children who expected to receive help. “It’s been three months since [the concert],” wrote Olga Kuznetsova, whose daughter received a highly publicized visit from Sharon Stone ahead of the event. “There’s no money, no help, no fund even.” A doctor at Hospital 31, where Kuznetsova’s daughter is receiving treatment, confirmed to Russian media that it had gotten no money after the charity concert.

The fund — which has no public listing, no website — was allegedly registered just ahead of the event. Its head is Vladimir Kiselyov, a Soviet-era rock star and St. Petersburg native who is said to have been a classmate of Putin’s.

Federation spokeswoman Kristina Snikers said the only thing the organizers intended to raise was global awareness for ill Russian children.

Tickets for the event were reportedly sold for up to 1 million rubles ($35,000) a piece. But Kiselyov, in an interview with Dozhd, a new TV channel, said guests were merely encouraged to give donations through envelopes placed at their seats.

In the interview with Dozhd, Kiselyov said no one at the charity concert — guests included Kevin Costner, Kurt Russell, Goldie Hawn, Mickey Rourke, Gerard Depardieu, Monica Bellucci and others — received any money. Agents for Stone, Costner, Rourke and Depardieu declined to comment.

The scandal provoked a huge outcry in Russia. Putin’s spokesman, Dmitry Peskov, was forced to comment, saying the prime minister was not involved in organizing the event and that the funds’ whereabouts should be investigated.

In regional elections held Monday, Putin’s party, United Russia, showed markedly lower support among Russians than in preview contests, failing to break 40 percent in some regions, despite widespread reports of irregularities. The people, Putin said, are tired.

“It’s clear that there’s mass unhappiness, especially with corruption,” Navalny said in a telephone interview. People’s patience only lasted so long, he said, predicting an eventual uprising like those seen in Tunisia and Egypt.

“It will be unexpected for all of us — for me, for Putin, for everyone. But it will happen sooner or later,” he said.

Kolesnikov, the St. Petersburg businessman who exposed the existence of "Putin's Palace," also doesn't think it can last forever.

"Corruption on this level — when it touches all of society, and when the level of bribes doesn't allow the economy to develop — this corruption destroys governments," he said.

Some here suspect that the allegations of corruption against Putin are part of pre-electoral infighting among Putin and Medvedev’s allies. Putin has said the two will decide who will run in Russia’s next presidential election in 2012, but it seems they have yet to come to a decision.

Still others prefer to remember an old Russian saying when it comes to high-level corruption: “Khozyain barin,” which can be loosely translated as “everything belongs to the boss.” It’s the daily corruption experienced at schools, hospitals, on the roads and in the tax office that get to Russians most; but they expect the tsar to get rich.